Friday Five: Impact of the homebuyer tax credit on the real estate market

By: Brad Horner

Following lobbying from Realtors and other real estate professionals, the U.S. Senate voted 60-37 on Wednesday to approve an extension of the homebuyer tax credit.  Under the amendment, house purchase contracts would still have had to be entered into by April 30 in order to qualify for the tax rebates, but buyers would now be given until Sept. 30 to close the purchase.

Throughout the credits’ lifespan, real estate professionals and consumers have expressed mixed views about their impact.  Some have said that this surge of buyers provided the boost that the market needed.  Others have said that it simply delayed the inevitable bottoming of the market.

And, still more are withholding an opinion until after the summer home buying season to determine if the incentives increased, or just shifted, demand.  Lawrence Yun, the National Association of Realtors’ chief economist, said that he had “no doubt” that there would be some temporary fallback in the market this summer (following the credits’ expiration), but added that the improving economy has increased consumer confidence, which should help support sales.

Below are the top five ways the tax credits impacted the spring real estate market:

1. Number of homes for sale: The number of homes on the market in April surged by the most in a decade, reported the National Association of Realtors.  Even with the rise in sales, the inventory of unsold homes increased in April to 4.04 million units (which would represent 8.4 months of supply of homes at the April sales pace).
2. Home sales: Stan Humphries, Zillow.com’s chief economist, said one in five homebuyers who used the tax credit wouldn’t have bought a home without it.  Sales of previously owned homes jumped 7.6% to a 5.77 million annual rate in April, the highest level in five months (beating market expectations of a 5.65 million unit pace), reported the National Association of Realtors. The South experienced an 8.6% increase in previously owned home sales.  New-home purchases, which account for about 10% of the housing market, jumped 15% in April after surging 30% the prior month, Commerce Department figures showed.  Sales of newly built, single-family homes surged 14.8% to a seasonally adjusted annual rate of 504,000 units in April. Three out of four regions posted substantial gains in new-home sales in April, including the South, which registered a 10.8% gain.
3. Sale prices: The increase in sales sparked a rise in home prices. The median price for a new home rose to $173,100 in May, up 4% from the previous year.
4. Type of buyers: First-time buyers accounted for an estimated 49% of existing home sales in April after 44% in March, 42% in February and 40% in January.
5. Mortgage applications: The Mortgage Bankers Association reported that mortgage applications were up 24% in April over March, driven by significant increases in conventional and government purchase applications. The Government purchased 50% of all home purchases in mid-April, which is the highest percentage in two decades.